Ex post Bargaining, Labor Coordination and Wage Formation at the Firm Level

Abstract

We lay out a model of wage bargaining with two leading features: bargaining is ex post to relevant investments, and there is individual bargaining in firms without a Union. We compare individual ex post bargaining to coordinated ex post bargaining, and we analyze the effects of wage formation. As opposed to ex ante bargaining models, the costs of destroying the employment relationship play a crucial role in determining wages. High firing costs in particular yield a rent for employees. Our theory points to an employer size-wage effect that is independent of the production function and market power. We derive a simple least squares specification from the theoretical model that allows us to estimate components of the wage premium from coordination. We reject the hypothesis that labor coordination does not alter the extensive form of the bargaining game. Labor coordination substantially increases bargaining power but decreases labor's ability to pose costly threats to the firm.